Peter's Short Term Trading Story Continued

The Index fell for two days from there, then had another weak one day rally. I placed another sell order below the low of that day, and the order was filled the next day as the down trend resumed.

"You had certainly built a large position by then," Paul commented. "Yes, but I was trading with the market's money - merely my unrealised profit, so my risk hadn't increased at all from when I took my first positions."

"Weren't you tempted to take your profits?" Paul asked. "I was, as the profit by now was significant, but my trading plan was to stay with the trend until either a swing high within the trend was broken by 5 points or the Index reached 775 points, so I stayed with the plan."

"Because I was confident the Index would reach 775 points, and it would probably do it in some sort of panic selloff, I started to leave my stop loss orders quite loose, because I didn't want to be stopped out of the trend prematurely. 

"It was fortunate that I did this, because a strong rally took the price back up to 1040 - just below my stop loss level above a significant swing high of 1045 points. After this powerful rally, the downtrend resumed. 

"I didn't take any additional short positions here due to the strength of that big rally, which actually broke a minor swing high. As the Index turned down again, I placed my stop loss orders 5 points above the most recent swing high and waited to see if my forecast of 775 would indeed eventuate.

If you would like to view a larger version of any of these charts, simply click on the chart itself and a larger version will open in a new window.

Source: Incredible Charts - www.incrediblecharts.com.au

"The S&P fell for 4 days straight and again rallied, only to fall again the next day.

"One more day down and then a two day rally that closed on the low for the day - this looked like a very weak market, and with 775 points looming, I sold an additional 6 Index futures as the trend down resumed and placed all of my stop loss orders 5 points above the most recent swing high."

Source: Incredible Charts - www.incrediblecharts.com.au

"The Index then had three days down, then 2 days up before breaking down again. 

"The trend was down, but it required patience to wait through these frequent rallies, as I was sitting a quite a large paper profit by now and I was very tempted to take it - many times I felt like cashing in my winnings, but I stuck to the plan. I have to admit though...it was a very difficult thing to do. My old emotions of fear and greed were working hard to make me take my profit.

"Fear was telling me I would lose my profit if I didn't take it, greed was telling me to hang on because there was much more downside left. 

"It is the fight between these two emotions that makes most traders either lose money, or make far less profit from the market than they could otherwise have made."

Source: Incredible Charts - www.incrediblecharts.com.au

"The Index then had three days down, then one day up - I sold 6 more futures contracts as the Index broke the low of that one day rally and moved my stop loss orders down to above this new swing high - it looked like the panic selling had started."

Source: Incredible Charts - www.incrediblecharts.com.au

"The S&P 500 then had an inside day, followed by an outside day, where I sold some more futures positions."

Source: Incredible Charts - www.incrediblecharts.com.au

"It then fell for 5 days into the final low at 775. That is where I exited all of my futures positions and bought two contracts for what I thought would be a rally off this important support level. That was the day we met."

Source: Incredible Charts - www.incrediblecharts.com.au

Paul could see now exactly how a professional trader followed his trading plan and by doing so had made a huge profit while millions of other traders and investors had lost billions of dollars in the same bear market.

He vowed to take a more active interest in both his long term and short term Stock portfolios - he went home and paper traded the S&P Index until he knew how it moved - until he knew how to trade it profitably. Now he was ready for some live trading...it was time to put his knowledge to the test.

To go to the next chapter, Please Click Here.

Copyright Stock Trading Review.com 2003-2007